This blog is produced by the Consortium for Project Leadership at the University of Wisconsin-Madison, for anyone interested in the practical application of leadership to project management. We aim to publish meaningful articles by various authors on a monthly basis focused on stories about lessons learned in leading and managing projects.

Thursday, January 15, 2015

This month’s story, the first of a two-part series about
working with and without trust, is about a manufacturing plant in a well-known
consumer goods corporation.

Three years ago we began a “grass-roots”
plan to expand production capacity for a successful product. The project
started in a wheat field and was to end two years later with a
multi-million dollar plant. Unfortunately, the eventual plant cost became a troublesome
issue in an otherwise successful project.

Management blind to the facts

To begin with, upper management believed
the project should cost $40 million, a figure based solely on their own
experience and not on the facts. Management declared the conceptual study’s
estimate of $55 million to be unacceptable because it had already agreed to staff
and develop a conceptual study based on their $40 million figure. They
questioned the cost engineer's credibility, even though he was quite
experienced and used proven methods to develop the estimate. There were even
discussions that the scope and estimate were “gold-plated” and that we really
wouldn’t build the plant like that. After reducing the project scope to appease
management (reduced building size, eliminated some non-process scope, etc.), a
compromise estimate of $50 million was accepted for the project's
appropriation.

Immediately after appropriation, the
eliminated scope was returned to the project because the scope reduction
decisions had been based on cost criteria alone, with no consideration for the
actual needs of the project. For example, reducing the building size meant a
key piece of production machinery would no longer fit, so the building had to
be returned to its original dimensions. Despite valid scope additions such as
this, management refused to approve changes. They said, “You already have $10
million more than you need. We're not going to give you any more fat!”

Given management’s attitude, the project team
maintained very little cost consciousness. Since management was ignoring valid
cost estimating and trending data, the team didn't bother with cost control and
the cost situation soon became disruptive. The project team knew they were
exceeding the appropriated amount, but since management refused to listen to
the team's concerns, cost control became a big joke.

So the scope grew while the cost
predictions remained the same. When the project team completed definition and
design, a second estimate was published at $58 million. When construction took over, the estimated
cost of the plant increased to $64 million (the amount the contractors
originally estimated for the project). Even the most dedicated effort of a
competent project team cannot deliver a successful project without the trust
and support of upper management. Trust is a two-way street: the trust of senior managers in the project
team facilitates the trust of the team in the senior leadership.

At project close, the project team had done
an excellent job of building a $64-million plant. The start-up was on time and
one of the best in the company. The only criterion the project failed to meet
was cost, due to management's stubborn arrogance and unbending devotion to its
own target cost. Unreasonable pressure from management to pursue unrealistic
objectives does not ensure the achievement of those objectives.

When it comes to organizational performance
it is a balancing act to challenge people to achieve high performance. Set the
bar too low and it only calls for minimal effort to reach. However, if the bar
is set too high, with unrealistic objectives, failure is the assured outcome.
And what was upper management’s response to the outcome in this story? The
contractors were hung.

Part 2 of
this two-part series will be published next month, with a story about working with trust.

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What is "Living Order"?

Embracing the "living order" concept is the first practice of project leadership. Leaders must be comfortable leading in today's environment of constant change. Bergson (1907) identified two types of order: the traditional concept of perfect geometric order, and living order -- which can be messy, even chaotic, with project problems and surprises in an evolving organization.